Search form

Is the United States Broke?

Republicans have taken to declaring the country "broke" as justification for draconian cuts in social spending. It's a nice bit of rhetoric, but the evidence -- according to Bloomberg's David Lynch -- points to the opposite:

The U.S. today is able to borrow at historically low interest rates, paying 0.68 percent on a two-year note that it had to offer at 5.1 percent before the financial crisis began in 2007. Financial products that pay off if Uncle Sam defaults aren’t attracting unusual investor demand. And tax revenue as a percentage of the economy is at a 60-year low, meaning if the government needs to raise cash and can summon the political will, it could do so.[…]

Financial markets dispute the political world’s conclusion. The cost of insuring for five years a notional $10 million in U.S. government debt is $45,830, less than half the cost in February 2009, at the height of the financial crisis, according to data provider CMA data. That makes U.S. government debt the fifth safest of 156 countries rated and less likely to suffer default than any major economy, including every member of the G20.

Moreover, the United States can (to a point) print money to cover its debts and still rely on global investors, who are still willing to buy U.S debt and lend money for longer periods at historically low interest rates. As Lynch notes, "ten-year bonds carry a rate of 3.5 percent, compared with an average 5.4 percent since 1990." Even with its large projected deficits, odds for U.S default are incredibly slim.

Long-term debt is a problem, but unemployment should be our priority; even with last month's decent job numbers, we still face the possibility of persistent, long-term unemployment. Indeed, according to projections by the Congressional Budget Office, we're still five years away from pre-recession levels of employment.With millions unable to meaningfully contribute to the economy, joblessness is a far greater short-term drag on the economy than debt, to say nothing of its damage to families and communities.

Our current obsession with debt has little to do with economic necessity and everything to do with our political culture, which privileges the rich and treats "fiscal responsibility" (reduced social spending and upward redistribution) as the chief goal of policy-making. Joblessness, by contrast, is an afterthought.